ASCAP's Desire To End Antitrust Agreement Leads DOJ To Investigate Latest Collusion Between Music Publishers

from the look-at-that dept

Over the last few months, you may have noticed that ASCAP, BMI and the various music publishers have been pushing strongly to end the so-called "consent decree" around music publishing. This was an agreement from 1941 (and reviewed in 2001) limiting how performance rights organizations like ASCAP and BMI could act, given their position as a somewhat natural monopoly over the compositions they represented. The idea was to stop those companies from holding those works hostage -- which is why there are things like rate setting procedures by the Copyright Royalty Board. Now, we have our problems with the CRB and the rate setting process, but there is a very real fear that ASCAP, BMI and others would make music streaming prohibitively expensive if given the chance. The whole focus on getting rid of the consent decree is to try to remove any effort to block them from jacking up their prices to ridiculous rates.

The attempt to ditch the consent decree seemed especially odd, given that just months earlier, a court had called out the clear collusion by ASCAP and a bunch of music publishers to try to artificially jack up Pandora's rates. The details were a little convoluted, but basically certain publishers "withdrew" certain music from ASCAP, claiming they wanted to negotiate directly with Pandora. They didn't negotiate in good faith, and basically waited right up until the deal was about to expire. They then refused to even name what songs would no longer be covered, leaving Pandora at a very real risk of streaming songs it no longer had the right to (without even knowing which songs were being "pulled.") Because of this, Pandora was forced to sign exorbitantly high rates, which ASCAP and others then used to try to get even higher rates for others. It was clearly collusion, because while ASCAP should have been upset about publishers withdrawing music, it clearly was not. Furthermore, there were clear discussions between ASCAP and the publishers about all of this.

The end result of that case was that ASCAP lost its attempt to really jack up rates to Pandora much higher, but many people wondered how ASCAP could get away with doing that without any sort of punishment. Well... new reports say that the Justice Department is
investigating ASCAP, BMI, Universal Music Publishing and Sony/ATV over possible collusion. This is being done as part of the DOJ's review of the consent decree, but ASCAP's decision to attack the consent decree right after a court called it out for collusion may backfire badly:

The CID requests are seeking documentation across a lot of particulars, including the effect of the consent decrees on rates, whether partial withdrawals of digital rights should be allowed, and plans to license other rights beyond the public performance rights that PROs handle today. However, a memo obtained by Billboard that was sent to employees by ASCAP senior VP of legal Richard Reimer began by noting that the CID is connected to the DOJs review of the consent decree. And, as a possible reminder to be careful of what you wish for, the DOJ is also investigating of alleged coordination among ASCAP, BMI, Sony/ATV Music Publishing, and Universal Music Publishing Group.

That aspect of the DOJ investigation was mentioned in a note to ASCAP employees telling them to "preserve all documents, whether in paper or electronic format, on all the CID-related topics."

In the Billboard article, the publishers and ASCAP insist they're not worried about all of this because they believe the judge in the Pandora rate setting case "got it wrong." That's quite a bit of hubris to have, given all of the evidence of collusion that was presented in that case. It seems quite possible that rather than ending the consent decree, as ASCAP and publishers would like, the DOJ may actually come down on all of them for some fairly serious antitrust problems.

Re:

"the DOJ may actually come down on all of them for some fairly serious antitrust problems."

It all depends on if ASCAP can negotiate some desirable back door dealings with the DOJ. You should know how it works by now, the law is just a front for the personal advancement of politicians and regulators.

Off the mark

Trying to make Pandora look like the good guy here is hysterical. BMI didn't love the withdrawal but it was better for them than a wholesale withdrawal by EMI as the first mover. ASCAP had to follow suit to allow partial withdrawal. All publishers are asking for is a market rate. The problem is the publishers are not themselves monopolies but they're treated that way by the DoJ because of the consent decree. I believe the DoJ will reform the consent decree to permit partial withdrawal because doing so furthers the DoJ's anticompetitive objective and the consent decree is no longer serving it's purpose and is enabling Pandora massively better rates. Tim Westergren takes home more money than all publishers combined.

Re: Off the mark

Let's face it, neither Pandora (& other broadcasters/services) nor the publishers are the bad guys here. They're all basically being forced into fighting over paltry table scraps by the greedy, manipulative artists who exercise a disproportionately large influence over the industry. These so-called "creators" just love to rake in the lion's share of the profits despite the fact that their contributions to the overall business have dwindled to almost nothing over the years.

Re: Off the mark

Then lets abolish copy protection laws and see what the market rate is.

Your statement is sorta disingenuous. What you mean by 'market rate' is all publishers are asking for is to conspire to raiser their prices as much as they can so that they can take the lions share of the profits for contributing absolutely nothing while allowing everyone else (like Pandora and the artists) to do all the work of producing everything and distributing it to customers. All publishers want is to charge everyone else monopoly prices for being worthless middlemen. That's what you mean by 'market rate'.

"The problem is the publishers are not themselves monopolies but they're treated that way by the DoJ because of the consent decree. "

Copy protection laws are monopoly laws and when they hold the copy protection over something they are monopolists.

The purpose of the consent decree wasn't to help protect the profits of publishers and to ensure that they (the parasite monopolist publisher that contributed nothing and simply gets paid for holding the copy protection) can fully milk artists, Pandora, and others (those that contribute something) out of every penny they can. Just because Pandora earned some money doesn't mean that the parasite middlemen are somehow entitled to gouge as much of it as they can. The purpose of the consent decree is to prevent publishers from colluding to fully gouge everyone else (ultimately consumers). To that degree it is serving its purpose. Preventing publishers from colluding to overcharge Pandora and artists so that others (those that contribute something) can make more without getting scammed is the purpose that it's supposed to serve. Your problem is that it's serving its purpose.

Re: Off the mark

Apologies for the long reply, but this is a subject that I am very very concerned about.

First of all, I'm absolutely loving the fact that this tactic backfired. Allowing partial withdrawals from ASCAP or BMI would be catastrophic for the artists they represent. That's why actual songwriters (as opposed to the major publishers) were opposed to it.

Here's the relevant passage from the ASCAP rate court decision (which should really be read in its entirity):

Songwriters, and at least some independent music publishers, were concerned about the damage that might be wrought from the Compendium modification and the partial withdrawal of rights from ASCAP. Songwriters trusted ASCAP to account reliably and fairly for the revenues ASCAP collected and to distribute the portion of revenues owed to writers promptly and fully. Songwriters were concerned about the loss of transparency in these functions if publishers took over the tasks of collection and distribution of licensing fees. They were concerned as well that the publishers would not manage with as much care the difficult task of properly accounting for the distribution of fees to multiple rights holders, and might even retain for themselves certain monies, such as advances, in which writers believed they were entitled to share. Overall, they were concerned about the increasing concentration of the publishing industry and the willingness by some, particularly Sony, to engage in direct licensing outside the framework of the PROs. These concerns ripened as the writers learned that Sony intended to follow EMI’s lead and take advantage of the Compendium modification to partially withdraw from ASCAP.

Some of this tension is captured in an email sent by ASCAP- member and composer [REDACTED] to LoFrumento on September 6, 2012. In that email, [REDACTED] explained the conflicts that he perceived between the major publishers and writers of ASCAP:

[W]riters and (the major) publishers differ. Writers, I believe are concerned with the health and well being of ASCAP. As small business owners we are dependent upon ASCAP for our success.... Today’s publishers (the majors) are executives not owners. Their focus is on the well being of their company, their investors and their own perceived performance all of which is reflected in the quarterly bottom line. In their vision of the future, ASCAP plays an inconsequential role.

[REDACTED] was not alone among writers in his concern about the publishers’ plan for new media withdrawals. Writer [REDACTED] wrote in an email of August 28, 2012 to LoFrumento, that there was a "disintegration of trust between writers and publishers," and that "the new breed of publishers was understood by writers to be motivated primarily by profits, and that writers would not look positively on ASCAP becoming a clearinghouse for processing direct licensing royalties." [REDACTED] concluded by expressing his opinion about "the vital role ASCAP plays in protecting writers from the shark-infested waters of the music business."

Now to Jon's comment.

BMI didn't love the withdrawal but it was better for them than a wholesale withdrawal by EMI as the first mover. ASCAP had to follow suit to allow partial withdrawal.

I haven't read the BMI ruling (couldn't find a copy online), but in ASCAP's case, it was even worse than that. The major publishers were so devoted to being monopoly players, that they threatened not just to leave, but to sue ASCAP if it closed a deal with Pandora:

[ASCAP CEO John] LoFrumento decided to reject the license that his team had negotiated with Pandora. He knew that either way he faced litigation. He knew that if he executed the license, Sony would sue ASCAP. Sony had threatened to sue ASCAP in the event any license agreement with Pandora that encompassed the Sony repertoire was executed before the end of 2012. LoFrumento advised the Law and Licensing Committee of ASCAP’s Board of Directors on December 12 that he intended to reject the terms Pandora and ASCAP had negotiated. Everyone understood that that meant that the rate court proceeding would go forward. None of the Committee members asked for a description of terms Pandora and ASCAP had negotiated or to discuss LoFrumento’s decision. Sony had also notified ASCAP that it might not use ASCAP for administration services if ASCAP issued a license to Pandora. [...]

The partial withdrawals of new media rights by major publishers, who collectively controlled about 50% of ASCAP’s music, threatened to make ASCAP a weaker organization. Sony and UMPG had also made clear to LoFrumento that they wanted to negotiate direct licenses with Pandora and opposed ASCAP entering into a final license with Pandora. There was, of course, a chance that by placating the major publishers, they might later exercise their option to rejoin ASCAP for all purposes. LoFrumento also had to consider the writers who had become restive and were doubtful about the supposed benefits of the publisher withdrawals. In the midst of all of this, LoFrumento cast the lot of ASCAP with the withdrawing major publishers and chose to let the rate court decide the dispute between Pandora and ASCAP. On December 14, ASCAP surprised Pandora and rejected the terms they had negotiated.

However, I don't see any indication that the BMI withdrawals had anything to do with it. Like I said, I don't have a copy of the BMI decision, so I don't know the dates; but I would guess that the major publishers had been blackmailing both PRO's simultaneously.

All publishers are asking for is a market rate.

Yes: they are asking for a completely unfair market rate. One that is set exclusively by the publishers, and that Pandora (and others) have absolutely no chance to negotiate.

More quotes from the ASCAP rate court decision:

In an email of October 4, Sony (which by that time controlled EMI) refused Pandora’s request to disclose the terms of the Pandora-EMI license to ASCAP.[...]

The first substantive discussion between Pandora and Sony occurred in a telephone call on October 25 between Sony’s Brodsky and Pandora’s Rosenbloum. Sony promptly set the tenor for the negotiations with a not-too-veiled threat. Brodsky stated "[i]t’s not our intention to shut down Pandora." In his many years of negotiating music licenses, Rosenbloum testified that had never before heard such a threat. In some ways, this threat put on the table no more than what was obvious. Sony’s works were already being played on Pandora; they were incorporated in the MGP. Unless Pandora could do without those works and remove them from its repertoire by January 1, Pandora had to obtain a license from Sony or face crippling copyright infringement claims. Sony was in the driver’s seat and the clock was ticking. [...]

Pandora’s first request for the list [of Sony/ATV compositions] came on November 1, 2012, in an email from Rosenbloum to Brodsky. Rosenbloum advised Brodsky that:

I wanted to follow up with you about our conversation last week regarding Pandora. As I mentioned, given the uncertainties around Sony/ATV’s and EMI’s position with respect to webcasting rates, Pandora has decided that it needs to be prepared to take down all Sony/ATV and EMI content in the event we are unable to agree on rates by the end of this year. In that regard, please let me know if you can provide us with an electronic listing of Sony/ATV and EMI repertoire. On a related note, as the end of the year is rapidly approaching, we look forward to receiving a rate proposal as soon as possible (to the extent that EMI and Sony/ATV are still interested in moving forward with a direct license agreement).

Brodsky received this request for a list of the Sony works, but never responded. In their telephone conversations during the month of November, Rosenbloum reiterated the request for a list of works on several occasions but never got any response. Rosenbloum repeated the request once more at a breakfast meeting that he and Pandora’s Kennedy had with Sony’s Brodsky and Bandier on November 30. Again, Sony did not respond. [...]

Sony had a list readily at hand, since the Compendium required that a publisher and ASCAP work together during the 90 day period before the effective withdrawal date to confirm precisely which works were being withdrawn. [...] As Brodsky recognized in his testimony, the list was "necessary" to Pandora in the event the parties did not reach a deal. Sony decided quite deliberately to withhold from Pandora the information Pandora needed to strengthen its hand in its negotiations with Sony. [...]

On Friday, December 14, with two weeks left in the year, and one week remaining before the music industry took its annual holiday break, ASCAP notified Pandora that it would not execute the agreement they had negotiated. The following Monday, Pandora urgently made two renewed written requests for the list of Sony’s works, one to Sony and another to ASCAP.

Since the repeated requests from Pandora’s outside counsel Rosenbloum had gone unanswered, Pandora’s general counsel Delida Costin sent her own email to Brodsky on December 17 requesting the list of works. Not wishing to empower Pandora, Sony never responded.

That same day, Pandora also asked ASCAP for the list of Sony works in ASCAP’s repertoire. It would have taken ASCAP about a day to respond to Pandora’s request with an accurate list of the Sony works. But, ASCAP, like Sony, stonewalled Pandora and refused to provide the list. [...]

ASCAP ultimately decided to contact Sony to see if it would give its permission to share the list of works. On Wednesday, December 19, ASCAP notified Sony of Pandora’s request and that it would be providing Pandora with the list of Sony works that ASCAP had previously given to Sony in connection with its withdrawal of rights. Not surprisingly, given its own refusal to share the list with Pandora, Sony did not give ASCAP permission to provide the list. ASCAP personnel shared their amusement with each other over Sony’s decision to withhold the list from Pandora. In one email, DeFilippis asked ASCAP’s counsel Richard Reimer "Why didn’t Sony provide the list to Pandora," to which Reimer replied "Ask me tomorrow," to which DeFilippis responded "Right. With drink in hand." [...]

The terms of the Pandora license with Sony were negotiated in four business days during the single week that ran between ASCAP’s rejection of the Pandora term sheet and the start of the holiday break. [...]

By mid-January 2013, and despite the existence of a confidentiality agreement, Sony leaked the key terms of the Pandora license to the press. [...] One article reported: "[m]any other publishers were rooting for Sony to deliver a higher rate . . . so that if [the PRO’s] deal with Pandora heads to rate court, the judge will consider the Sony rate the market rate and raise performance royalties accordingly." The press coverage focused on Sony’s leverage in negotiations due to its outsize market power: "Look a little closer, and this is ultimately a very lopsided negotiation.... Pandora absolutely needs Sony’s catalog to run an effective radio service. And if they don’t pay what Sony/ATV wants, they can’t use it, by law."

Pandora did not have to wait long for the next publisher to leave ASCAP and demand a yet higher rate for a direct license. In February 2013, Pandora learned that UMPG was scheduled to withdraw its new media licensing rights from ASCAP effective July 1, 2013. [...]

In their first substantive meeting, which occurred on March 22, Horowitz quizzed Kennedy at some length about the state of Pandora’s business. Horowitz then moved to a discussion of Pandora’s need for a license from UMPG, uttering what Kennedy took to be an implicit threat. Horowitz said "we want Pandora to survive." [...] Showing confidence that he knew the material terms of the Sony-Pandora license, Horowitz repeatedly asked Kennedy, (as Kennedy paraphrased) "how did you get Marty [Bandier] at Sony to agree to such a low payment?" [...]

Kennedy indicated a preference for negotiating with the PROs, but added that, if UMPG wanted to negotiate directly with Pandora, then UMPG should provide Pandora with a list of the withdrawn compositions and UMPG’s proposal for a rate. Horowitz said he was "not sure" he was able to provide Pandora with a list, and indicated that Pandora should just make a deal based on UMPG’s representation of its overall market share. [...]

In late April 2013, UMPG provided to Pandora a complete list of the UMPG works in the ASCAP repertoire, but in a way that prevented Pandora from using the information to remove UMPG compositions from its service. The list was subject to an NDA. [...] The NDA then restricted Pandora’s use of the list. It provided that

[Pandora] agrees not to use any Confidential Information for any purpose except to evaluate and engage in discussions concerning a potential business relationship between the Parties.

Pandora correctly interpreted this provision as forbidding it from using the list to remove the UMPG works from its service.

This was not even remotely close to negotiating a "fair market rate." It was blackmail, pure and simple.

The problem is the publishers are not themselves monopolies but they're treated that way by the DoJ because of the consent decree.

First of all: The DOJ's consent decrees govern ASCAP and BMI, not the publishers themselves. And they are monopolies.

If they were not, then Pandora (and radio stations, and bars, and rock clubs...) could negotiate with competing PRO's for the same material. So, if you wanted to play "All the Single Ladies" on your jukebox, you could choose from ASCAP, BMI, or SESAC (or anyone else) for the lowest rate to play that particular song.

Of course, that's not how it works. And that is because copyright itself is a monopoly. It is a monopoly on a single work, but since it is transferrable to a PRO (in this case), that PRO has a monopoly on all of the works that are transferred to it.

This is completely uncontroversial, and it's why ASCAP and BMI had to agree to consent decrees in the first place: if they didn't, they would violate the Sherman Antitrust Act.

And this is why there cannot possibly be a "fair market price" for copyrighted material: copyright is simply not part of an open market. Again, from the ASCAP decision:

[I]n determining the reasonableness of a licensing fee, a court "must attempt to approximate the 'fair market value' of a license -- what a license applicant would pay in an arm’s length transaction." MobiTV, Inc., 681 F.3d at 82. "In so doing, the rate-setting court must take into account the fact that ASCAP, as a monopolist, exercises market-distorting power in negotiations for the use of its music." Id. The Second Circuit has recognized that, because music performance rights are largely aggregated in the PROs which operate under consent decrees, "there is no competitive market in music rights." ASCAP v. Showtime/The Movie Channel, 912 F.2d 563, 577 (2d Cir. 1990). Consequently, fair market value is a "hypothetical" matter. Id. at 569.

The publishers themselves form an oligopoly. They effectively become a monopoly when they collude to raise prices (instead of competing to lower prices). That is clearly what happened with Pandora.

Sirius XM's own experience with SESAC (which, unlike ASCAP and BMI, is not bound by a consent decree) drives home the importance of the consent decrees. In prior negotiations with Sirius XM, SESAC has demanded oversized fees unsupported by the scant information available regarding its catalogue, and always with the implicit threat of infringement liability. At the same time, it has refused to identify its catalogue of musical works, meaning that Sirius XM cannot (as it could with a single copyright holder) simply remove the tracks at issue from its service. This combination of concentrated ownership and either an unwillingness or inability to be transparent as to what works are actually in the repertory creates a completely untenable situation.

Such anti-competitive concerns have been exacerbated by recent attempts by publishers to withdraw from ASCAP and BMI. As detailed by Judge Cote from the record of the ASCAP-Pandora litigation, publishers that control hundreds or thousands of smaller catalogues (and millions of songs) under one licensing umbrella – making them effectively private PROs five or ten times the size of SESAC – have (a) insisted on the ability to partially withdraw from ASCAP; (b) made exorbitant fee demands, under the threat of litigation, to force direct licenses on services who no longer have access to those publishers’ works via the PROs; and (c) refused to provide catalog data that would allow the targeted service to diminish or stop performing the works of those publishers absent a more reasonable fee demand.

I believe the DoJ will reform the consent decree to permit partial withdrawal because doing so furthers the DoJ's anticompetitive objective

Unless you consider large publishers with monopolies over their own music colluding to selectively raise rates to be "competitive," I believe you're wrong. If anything, the DOJ should expand the consent decrees to cover the publishers themselves, and not just the PRO's.

and the consent decree is no longer serving it's purpose and is enabling Pandora massively better rates.

This is a complete joke. According to my back-of-the-envelope calculations, Pandora paid roughly $8 million to publishers in 2013 (1.85% of total revenue, which was about $427 million). There's no way that Westergren takes home that much in a year.

DoJ doing their jobs? Yeah, I'll believe it when I see some convictions, as right now I expect nothing more than some slapped hands, and maybe some low level employees offered up as the 'guilty parties' if it even reaches that point.

Publishers don't get their rights out of nowhere. Songwriters (not artists...it's an important distinction) convey their rights to publishers because it enables them to make more money through better collection, procured placements, etc. If publishers were worthless middlemen the business wouldn't be sustained by songwriters. It's the writers choice and there's a reason they do it. It's the same reason so many songwriters appeared on Capitol Hill rallying for things like the songwriter equity act. If you're fighting for songwriters then you want to fight for the publishers in respect of the ability to negotiate better rates. As against Pandora, songwriters interests are 100% aligned with the publishers that represent them. This seems to be the primary disconnect you have from reality. And you're right in that copyright laws are legal monopolies but without incentivizing songwriters financially there would be substantially less quality music. The objective of the consent decree isn't to prevent all copyright holders from negotiating fairly. The point of the consent decree is to keep ASCAP/BMI from flexing its muscle and all US repertoire is licensed by them or Sesac. By enabling publishers to withdraw certain rights they become necessarily less anticompetitive because they only represent their catalogs (and truthfully the co publishers can license 100%). We are talking market rates here because any other industry is allowed to negotiate without their hands tied. I don't personally object to the consent decree but I do object to the denial from the court to allow publishers to selectively withdraw rights. It's in publishers interest (and trying to do so is part of their duty to their songwriters to get better rates for their songwriters). You argue the purpose of the consent decree is to keep publishers from colluding....no it's not....that's federal antitrust law...the purpose is to keep each of ASCAP and BMI from bullying the market. Allowing partial withdrawal does that. Keep in mind songwriters that aren't artists don't make money other than through their publishing. You don't seem to understand that. I'll look for the report again about Tim but I'm not prone to giving citations in comments. Feel free to do a search of songwriters opinion of pandora. If you're concern is the artists...that's recorded music and it's likely you don't understand the difference. That's who takes home the lion's share from the copyright holders perspective and that is a market rate not set by any consent decree. So the people only making money on their publishing (not touring, merch, etc) get the shaft because the DoJ hasn't stepped in to revise the consent decree to reflect modern times.

Re: Hubris, or not

If by 'fix' you mean, 'enough bought and paid for people in the right positions to be sure that they'll never face any real consequences for their actions', then the answer is mostly likely 'Yes, yes they do', and that is why they are so confident.

i'd given an earlier response that seems only now to be published so feel free to comment on that as well.

the only thing i will mention is that when i mentioned the tim westergren/publishers pay, considering this is a topic on pandora, i obviously meant pay in respect of pandora. for him to build a business on the backs of the rights of others (SONGWRITERS and publishers), the least he can do is pay rights holders more than he pays himself. the best i was able to reobtain was the following (posted by a SONGWRITER).

Trust me...PLENTY of songwriters are against Pandora and they lobbied on Capital Hill to that very effect. Of course you wouldn't know that.

Also, the BMI issue wasn't about any case....it was bc the consent decree says all or nothing...EMI years ago said "ok, nothing." BMI scrambled to do what they could to keep EMI to keep BMI's own catalog as big as possible...that's why they (and ascap) permitted digital withdrawal. You're arguing in theory when you have no notion of what's actually happening. Of course that's why you're here on comment boards instead of giving actual legal analysis.

Market rate means negotiated. Why wouldn't pandora be able to negotiate? Of course when publisher's leave the PRO they negotiate a higher rate...that's not blackmail, that's fair market not constricted by monopoly rules imposed on them when they are not deemed by the DoJ to be monopolies. Copy/pasting whole blocks of text does nothing to further your argument. I didn't argue PROs aren't monopolies (of course they are)...all I said is that selective withdrawal furthers the anticompetitive spirit to put the rights in the hands of a greater number...PROs have some (indies), majors keep their own...thus if publishers can withdraw digital rights, it is de facto less competitive. You confuse so many issues that I'm silly to be wasting my time. If there is collusion....that's different (hint, there's not). It's not collusion to follow the lead of a market leader. EMI withdrew and everyone else said "hey, we want to do that too." Why withdraw? To get better rates? Who benefits? The Songwriters (and the publishers). that is completely uncontroversial. Truth is, in the end, if the DoJ doesn't permit selective withdrawal, publishers will completely withdrawal and in the long run it'll benefit songwriters and publishers alike.

Karl, at least it was reasonably well reasoned. That One Guy/AnonCow, wish I could say the same.